The role of cognitive reflection in decision making : Evidence from Pakistani Managers. / Sajid, Muhammad; Li, Matthew C.

In: Judgment and Decision Making, Vol. 14, No. 5, 30.09.2019, p. 591–604.

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The role of cognitive reflection in decision making : Evidence from Pakistani Managers. / Sajid, Muhammad; Li, Matthew C.

In: Judgment and Decision Making, Vol. 14, No. 5, 30.09.2019, p. 591–604.

Research output: Contribution to journalArticle

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@article{cb96c06c0ab244c39c71dc85a6b82bf8,
title = "The role of cognitive reflection in decision making: Evidence from Pakistani Managers",
abstract = "Assessing how managers discount and evaluate risks is crucial in designing effective managerial policies. In this work, we examine whether risk preferences (RP; both in the domains of gain and loss) and time preferences (TP) are related to managers' cognitive reflection (CR). To achieve this, the current study focuses on the responses of 601 corporate decision-makers, such as CEO and CFO, of 200 non-financial firms listed at the Pakistan Stock Exchange. Using the three-item of Cognitive Reflection Test (CRT; Frederick, 2005) as a measure of CR, we observe that males perform better on this test than females. Correlation analysis reveals that individuals' RP in the gain domain are positively associated with their TP, implying that risk-taking individuals are more patient. Our evidence further shows that higher CR is associated with a higher likelihood of increased patience and a lower likelihood of willingness to take risks in the domain of loss. Greater CR is also linked to a higher likelihood of risk-taking in the domain of gain. These findings have important implications regarding the ability of managers to make financial decisions that involve uncertainty and delayed rewards but maximize firm value.",
author = "Muhammad Sajid and Li, {Matthew C.}",
year = "2019",
month = sep,
day = "30",
doi = "19/190522/jdm190522",
language = "English",
volume = "14",
pages = "591–604",
journal = "Judgment and Decision Making",
issn = "1930-2975",
publisher = "Society for Judgment and Decision Making",
number = "5",

}

RIS

TY - JOUR

T1 - The role of cognitive reflection in decision making

T2 - Evidence from Pakistani Managers

AU - Sajid, Muhammad

AU - Li, Matthew C.

PY - 2019/9/30

Y1 - 2019/9/30

N2 - Assessing how managers discount and evaluate risks is crucial in designing effective managerial policies. In this work, we examine whether risk preferences (RP; both in the domains of gain and loss) and time preferences (TP) are related to managers' cognitive reflection (CR). To achieve this, the current study focuses on the responses of 601 corporate decision-makers, such as CEO and CFO, of 200 non-financial firms listed at the Pakistan Stock Exchange. Using the three-item of Cognitive Reflection Test (CRT; Frederick, 2005) as a measure of CR, we observe that males perform better on this test than females. Correlation analysis reveals that individuals' RP in the gain domain are positively associated with their TP, implying that risk-taking individuals are more patient. Our evidence further shows that higher CR is associated with a higher likelihood of increased patience and a lower likelihood of willingness to take risks in the domain of loss. Greater CR is also linked to a higher likelihood of risk-taking in the domain of gain. These findings have important implications regarding the ability of managers to make financial decisions that involve uncertainty and delayed rewards but maximize firm value.

AB - Assessing how managers discount and evaluate risks is crucial in designing effective managerial policies. In this work, we examine whether risk preferences (RP; both in the domains of gain and loss) and time preferences (TP) are related to managers' cognitive reflection (CR). To achieve this, the current study focuses on the responses of 601 corporate decision-makers, such as CEO and CFO, of 200 non-financial firms listed at the Pakistan Stock Exchange. Using the three-item of Cognitive Reflection Test (CRT; Frederick, 2005) as a measure of CR, we observe that males perform better on this test than females. Correlation analysis reveals that individuals' RP in the gain domain are positively associated with their TP, implying that risk-taking individuals are more patient. Our evidence further shows that higher CR is associated with a higher likelihood of increased patience and a lower likelihood of willingness to take risks in the domain of loss. Greater CR is also linked to a higher likelihood of risk-taking in the domain of gain. These findings have important implications regarding the ability of managers to make financial decisions that involve uncertainty and delayed rewards but maximize firm value.

U2 - 19/190522/jdm190522

DO - 19/190522/jdm190522

M3 - Article

VL - 14

SP - 591

EP - 604

JO - Judgment and Decision Making

JF - Judgment and Decision Making

SN - 1930-2975

IS - 5

ER -